The Worst May Be Over For Europe’s Carmakers After Tough 2025
Samantha LuanEuropean carmakers are inching closer to a recovery next year after a series of profit warnings in 2025, with cost cuts and turnaround plans prompting analysts to raise earnings estimates.
European carmakers are inching closer to a recovery next year after a series of profit warnings in 2025, with cost cuts and turnaround plans prompting analysts to raise earnings estimates.
The Stoxx Europe 600 auto index is set for a sharp earnings-per-share rebound in 2026 and 2027, Bloomberg Intelligence data shows. This year is "likely to be the trough" for the sector's earnings, according to BI strategist Laurent Douillet, as new electric vehicle subsidies, cost measures and strategy overhauls brighten the outlook.
Automakers' bottom lines have been hit on multiple fronts in 2025 as they battled both internal setbacks and external troubles, including US tariffs, subdued demand in China, aggressive competition from Chinese carmakers and a slowdown in the electric vehicle market.
Luxury automaker Porsche AG slashed its guidance four times this year as it decided to scale back its EV ambitions, Jeep-owner Stellantis NV took billions in one-time charges as it adjusted product ranges and redirected production in the US, and Renault SA recognized an €9.5 billion ($10.9 billion) loss due to an accounting change for its stake in Nissan Motor Co.
More recently, the shortage of critical components from chipmaker Nexperia BV — caught in a political standoff between the Netherlands and China — presented an additional challenge. Only last week, Volkswagen AG warned the delivery of its financial targets hinges on the continued supply of semiconductors, saying it only had enough chips to keep its German manufacturing plants running for a week.
"Overall car production can only move at the pace of the slowest components," Citigroup analyst Ross MacDonald said. The Nexperia issue could cause further disruption to car production in the fourth quarter, he added.
These challenges have kept the sector underperforming the broader European index.
Challenges remain for the sector, with signs of continued weakness in the key US and Chinese markets and fundamentals still "fragile," according to BI's Douillet.
Still, the tide may be turning as the automakers look forward to €3 billion of new EV subsidies in Germany through 2029, while efforts to reduce costs and reshape model lineups should start paying off in 2026.
Porsche — contending with subdued demand in China, supply chain bottlenecks and cooling demand for EVs — signaled that the worst may be over at its latest results as it aims to reset its luxury credentials.
"Whilst Porsche has taken a long time to deal with the China sales loss and battery electric vehicle strategic re-alignment, we believe much of this is now done," according to Citigroup analyst Harald Hendrikse, who expects significant earnings improvement in 2026.
Parent company Volkswagen, which took a €2.7 billion goodwill impairment charge related to Porsche's strategic shift, reported solid cash flow and margins for the third quarter, boosting investor confidence in a recovery. The automaker said this week that the easing of US-China trade tensions was a "positive signal" for the potential resumption of Nexperia chip shipments.
"This print, despite its nuances, provides compelling evidence of the business' underlying strength," Deutsche Bank analyst Tim Rokossa said, adding that new models and cost savings should support this "much-needed" cash generation.
Mercedes-Benz Group AG kept its outlook and launched a €2 billion buyback as it turned to cost cuts to protect profitability, while Stellantis' sales are showing signs of improvement in North America as the company refocuses on making SUVs for its main US market.
The optimism has been fueled by a recovery in European car sales, which rose for a third straight month in September. Combined with tariffs concerns fading further into the background and turnaround efforts starting to feed through into earnings bodes well for 2026.
